When I had Champus health insurance (for Active Duty military and families), I required specialized physical therapy. My PT had advanced degrees. Each appointment took an hour - a real hour, not a psychiatrist's 45-minute hour. My PT maintained an office in San Francisco, a business license, PT licensing, etc. She paid rent, malpractice insurance, utilities, continuing education, taxes, all of her own benefits, and licenses - out of her reimbursements - before she saw a dime of income. Champus reimbursed $25 per one hour office visit. (I paid the other $100+ out of pocket.) That's government-run health care.
In some areas, government medical reimbursements amount to a fair wage for medical providers. In other areas, government-funded patients (whether on Medicare, Medicaid, Champus, etc.) have precious few providers to choose from, as providers have opted out altogether. Providers who feel that government reimbursements run too low - they can opt out, or shift the cost onto their private-pay patients. Many shift the cost to private payers.
Government also mandates that hospitals treat emergencies without regard for the patient's ability to pay. Hospitals shift those costs to private-pay patients, too.
As Baby Boomers approach the age of Medicare eligibility, the government faces a mounting problem - health-care costs are projected to increase per service, growing life expectancy increases the lifetime services used per patient, and a whole bunch of new patients are expecting the Federal government to start covering their bills. Massive tax increases are always unpopular. Reducing services for the elderly makes lawmakers look like heartless thugs. But declaring bankruptcy is not an option, either.
The proposed solution to the mess is to force citizens onto the rolls of private health insurance, which would increase the cushion of cash available for absorbing cost-shifting from under-reimbursement for Medicare. Meanwhile, insurance companies get a quick influx of cash, which makes them feel all warm and fuzzy about the lawmakers who passed the bill, and voters get to believe that the government has "done something" about health care.
The problem with this "solution" is that 1) it's unAmerican to force citizens to purchase something from private companies; 2) it does nothing to address the genuine problems in the system that have caused enormous medical-cost-inflation and will continue to cause enormous medical-cost-inflation; and 3) it does nothing to solve the Medicare tsunami, except to shift the blame from elected officials (tax hikes) to private insurance companies (rate hikes).
Sunday, March 07, 2010
Friday, March 05, 2010
Save or pay down debts?
Today I saw yet another article advocating that people put extra money to paying down credit cards before saving. The logic is sweet - credit card interest rates run 6-36%, so the rate of "return" from paying down a credit card is higher than you can get on savings.
Still, I disagree. Remember the scene in It's a Wonderful Life, where the bankers close with two one-dollar-bills left to their name, and have a honeymoon party for the dollars, telling them they'd better go make some babies, quick? Savings actually does breed.
Savings creates a habit of saving. Once a balance adds up to something meaningful for you (for the poorest savers, even a $10 balance becomes a significant chunk of money), you want it to keep growing. It becomes a reminder not to spend more than you need to. Financial psychologists talk about creating an anchor - a mental reference point against which one evaluates all other expenditures. Savings creates an anchor point based on how much one has saved - a far, far lower anchor than, say, the limit on a credit card. The saver remembers how long it took to save that $100, $500, $5000 balance, and that memory gets balanced against the desire to purchase an expensive luxury.
Furthermore, savings is a reliable source of cash in a crisis. Credit cards can cut limits, close accounts, and raise interest rates - making the credit card less reliable in a crisis. If a crisis hits - an unexpected major repair bill, for example - most consumers are better off pulling the money out of a savings account. Put it on the credit card, and it becomes a stepping stone to creating a habit of putting expenses on the credit card.
Credit cards can resemble the little shoe box of tax receipts - out of sight, out of mind - and one more receipt not filed, one more expense not paid off, eh, it's just one more. But one more withdrawal from a savings account - we take note. We develop affection for our little savings accounts of love, the little financial leprechauns that are meant to take care of us in our time of need. It hurts to hurt them. And spending money we can't afford should hurt. It says, hey, that's the third time we've withdrawn savings this month; we've got to change something. Credit cards don't say that until the balance (or minimum payments) hurt, and, then, it's a mighty big problem to solve.
Building a savings account is like eating healthier or exercising. It reconnects us with the big picture around our money. It teaches us about the positive effects our financial life can provide, in addition to the negatives. Credit cards' positive feedback system is like crack or heroin - it can give you joyous experiences (big purchases, vacations), but those positive experiences destroy your financial insides. Credit card interest is like rotting teeth, the balance like a cancer, slowly eating away at your financial future. It's so bleak, it can create a craving for one more high; one more won't matter. The feel-good times with credit cards are when we do things we shouldn't do. The feel-good times with savings happen when we do things that are good for us over the long haul. Open up the statement - look, it's up another hundred dollars! Cancelling cable becomes worthwhile, as we see the positive outcome grow and grow.
Once a person (or family) has 3 months emergency savings established, that's the time to start whittling down the credit card. But I think a family should keep putting at least a little money into the savings account, even just $5 or $10 a month, to keep the positive-feedback loop going, keep putting at least some financial brain energy to building a better future.
Still, I disagree. Remember the scene in It's a Wonderful Life, where the bankers close with two one-dollar-bills left to their name, and have a honeymoon party for the dollars, telling them they'd better go make some babies, quick? Savings actually does breed.
Savings creates a habit of saving. Once a balance adds up to something meaningful for you (for the poorest savers, even a $10 balance becomes a significant chunk of money), you want it to keep growing. It becomes a reminder not to spend more than you need to. Financial psychologists talk about creating an anchor - a mental reference point against which one evaluates all other expenditures. Savings creates an anchor point based on how much one has saved - a far, far lower anchor than, say, the limit on a credit card. The saver remembers how long it took to save that $100, $500, $5000 balance, and that memory gets balanced against the desire to purchase an expensive luxury.
Furthermore, savings is a reliable source of cash in a crisis. Credit cards can cut limits, close accounts, and raise interest rates - making the credit card less reliable in a crisis. If a crisis hits - an unexpected major repair bill, for example - most consumers are better off pulling the money out of a savings account. Put it on the credit card, and it becomes a stepping stone to creating a habit of putting expenses on the credit card.
Credit cards can resemble the little shoe box of tax receipts - out of sight, out of mind - and one more receipt not filed, one more expense not paid off, eh, it's just one more. But one more withdrawal from a savings account - we take note. We develop affection for our little savings accounts of love, the little financial leprechauns that are meant to take care of us in our time of need. It hurts to hurt them. And spending money we can't afford should hurt. It says, hey, that's the third time we've withdrawn savings this month; we've got to change something. Credit cards don't say that until the balance (or minimum payments) hurt, and, then, it's a mighty big problem to solve.
Building a savings account is like eating healthier or exercising. It reconnects us with the big picture around our money. It teaches us about the positive effects our financial life can provide, in addition to the negatives. Credit cards' positive feedback system is like crack or heroin - it can give you joyous experiences (big purchases, vacations), but those positive experiences destroy your financial insides. Credit card interest is like rotting teeth, the balance like a cancer, slowly eating away at your financial future. It's so bleak, it can create a craving for one more high; one more won't matter. The feel-good times with credit cards are when we do things we shouldn't do. The feel-good times with savings happen when we do things that are good for us over the long haul. Open up the statement - look, it's up another hundred dollars! Cancelling cable becomes worthwhile, as we see the positive outcome grow and grow.
Once a person (or family) has 3 months emergency savings established, that's the time to start whittling down the credit card. But I think a family should keep putting at least a little money into the savings account, even just $5 or $10 a month, to keep the positive-feedback loop going, keep putting at least some financial brain energy to building a better future.
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